Renewable energy demand is driving utility business model change

This report from the US member firm examines how demand for renewable energy and increasing penetration of distributed energy resources is transforming the industry. Utility business models are changing in response to this new paradigm.

Aligning customer demand with business opportunity

Increasing demand for renewable energy across residential and commercial and industrial (C&I) segments is driving utility business model change up and down the value chain. As energy markets in the United States and around the world can attest, customers want greater involvement and more innovation in their energy generation and use. This transformation is both enabled and driven by the increasing penetration of distributed energy resources (DER).

This shift comes at a time when electricity providers are faced with flat or declining demand and pressure to manage costs, grow earnings, and satisfy public shareholders.

As a result, electricity providers are exploring new ways to capitalize on customer demand for renewable energy.Utility business models are evolving through technology advancements, partnerships with distributed energy resource solution companies, and experimental program models.

Electricity providers see new and potentially profitable opportunities to provide customers with:

Expanding customer choice for renewables

To address customer demand for renewable resources, many electricity providers are wisely aligning with potential disruptors before they are disrupted themselves.2 By strategically investing in and acquiring capabilities that provide customers with greater choice, electricity providers can weave renewable product offerings into their corporate strategies and gain expanded access to C&I customers.

Electricity providers are also forming partnerships with third-party marketplaces for solar and other DER suppliers as a way to offer customers more choice in their energy supply mix. These types of partnerships allow utilities to deepen customer engagement and satisfaction while generating business value.

Realizing the benefits of aggregation

Electricity providers and customers alike see the opportunity to extract more value from DER through aggregation. This next frontier of participation includes customers pooling their buying power and utilities engaging DER aggregators for grid balancing and other customer services.

C&I customers that don’t have the financial resources to invest in or own power assets themselves are overcoming this market barrier via the buyers’ syndicate—a group of companies or organizations that partner to pursue renewable energy purchasing deals. Community solar programs are another approach, enabling residential and C&I customers to invest in a solar array or receive credits on their electricity bill for solar power not located at their home or business.

These programs demonstrate the end-user benefits of aggregated demand. Supply-side aggregation has the potential to generate value for utilities and customers through lower costs and a more efficient grid.

Engaging customers through transactive energy platforms

Consumer demands for a more active role in energy management—combined with the ever-growing popularity of all things digital—will drive greater interest in and adoption of transactive energy platforms.

Blockchain technology is generating attention in the energy industry for its ability to enable transactive platforms. It can enable peer-to-peer models of power production and distribution, generate smart contracts, facilitate the exchange of metering data, and unlock value in smart home devices.

Blockchain’s promise is just beginning to unfold in the electricity sector as small start-ups demonstrate its potential and incumbent utilities begin piloting applications, but experts anticipate it could accelerate the transition to a distributed renewable energy future.

Move toward a renewable future

Evolving forms of customer participation—including demand for options in their energy supply mix, aggregation opportunities, and access to transactive energy platforms—will continue to motivate electricity providers to adapt their market strategies in new and profitable ways.

While the race to create the most effective business models has only just begun, getting an early start on identifying options and setting strategy will be key to electricity provider success.

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